Treasury bond prices ended mixed in quiet trading Friday following a breakdown in federal budget negotiations and mounting uncertainty over the Federal Reserve's next decision on interest rates.
The price of the Treasury's main 30-year bond slipped 5-32 point, or $1.56 per $1,000 in face value. Its yield, which moves in the opposition direction, rose to 6.09 percent from 6.08 percent late Thursday.Budget talks between the Clinton administration and congressional Republicans abruptly broke off Friday afternoon, increasing the chances for a partial federal shutdown after midnight.
The two sides have been trying to hammer out an agreement to balance the Federal budget within seven years but are far apart on key issues such as Medicaid spending.
Without an agreement, spending authority for several key agencies expires at midnight. Republicans said they would propose legislation to keep the government running but said they might attach to it elements that could draw a presidential veto, forcing agencies to close.
The on-again, off-again negotiations have unnerved buyers of bonds, which are sold by the federal government to cover the federal deficit and raise fresh revenue.
"The market sold off after the budget talks broke down," said Dan Bernzweig, a money-market trader at Bank Leumi Trust Co. of New York
But, he added, "The way politicians go, they say one thing one minute but within the next hour or day they have positions completely reversed."
Trading was described as extremely slow as traders and investors weighed prospects for an interest-rate reduction when Federal Reserve policymakers meet on Tuesday.
"Everybody is kind of sitting and waiting to see what the Fed will or won't do on the 19th," said Marilyn Cohen, a California-based money manager of about $60 billion in bonds.
Expectations that central bankers may cut interest rates to invigorate a sagging economy has fueled a powerful bond-market rally in recent months. But bond prices stalled this past week amid a raft of fresh reports portraying a mixed picture of the U.S. economy.
Inflation at the wholesale level surged last month, but consumer prices remained tame. Retail sales, an important measure of economic growth, jumped sharply in November but so far the Christmas shopping season has turned out to be disappointing.
Despite the spotty economy, many market players still expect a modest reduction in short-term interest rates of about one-quarter percentage point, which would give a small boost to the U.S. economy, bond strategists said. Lower rates would improve the value of fixed-income securities already in circulation.
Elsewhere in the market, prices of short-term Treasuries rose 1-32 point and intermediate maturities were unchanged to down 3-32 point, the financial information service Dow Jones Telerate Inc. reported.
The Lehman Brothers Daily Treasury Bond Index, reflecting price movements on bonds with maturities of a year or longer, fell 0.04 to 1,285.80.
Yields on three-month Treasury bills fell to 5.35 percent as the discount slipped 0.06 percentage point to 5.20 percent. Six-month yields fell to 5.35 percent as the discount fell 0.04 point to 5.14 percent. One-year yields dropped to 5.30 percent as the discount fell 0.03 point to 5.02 percent.